The competing motivations behind CBDCs and stablecoins make deciphering the future of digital currency incredibly complex.
Whether rooted in a desire to surveil citizens, provide financial inclusion or create interbank efficiency, we have yet to see the ‘killer app’ of a CBDC (central bank digital currency).
In a recent webinar asking if stablecoins can transform banking, experts from Checkout.com, Fireblocks and Gemini discussed how incoming stablecoin regulation may impact the trajectory of their government-issued peers — CBCDs.
Stablecoins vs. CBDCs review
First, it is important to highlight the main differences between stablecoins and CBDCs. Traditional stablecoins such as USD Coin and Tether are digital tokens that offer price stability through a 1:1 backing to fiat currency. They manage this backing through various reserve holdings of real-world assets. CBDCs on the other hand, are issued directly by governing authorities and do not have reserve requirements.
Stablecoin regulation recap
In June, Sens. Cynthia Lummis, R-Wyo., and Kirsten Gillibrand, D-NY, introduced a bipartisan bill that proposes a comprehensive framework for the regulation of digital assets (including stablecoins) in the United States.
In the same month, the European Central Bank (ECB) produced its report on stablecoins, citing an urgent need to regulate based on their increasing threat to financial stability. The Bank for International Settlements (BIS) issued its final guidance on stablecoins earlier this month, calling for stablecoins to follow the same settlement rules as traditional finance.
Meanwhile, a recent BIS survey shows that 90% of central banks are seriously exploring CBDCs. Half have moved beyond the initial research stage, with 65% of central banks expecting to issue a retail CBDC in the foreseeable future.
The difference between retail and wholesale CBDCs
CBDC types can vary, but bankers group them into a wholesale or retail category. The main difference is the intended adopters. Wholesale CBDCs are only provided to financial institutions with central bank reserves — and retail CBDCs are offered directly to consumers and businesses. Both are government-backed digital currencies designed to eliminate risk and deliver efficiency.
This choice between the two is critical to how a CBDC affects a stablecoin operation and purpose.